Bitcoins: The Second Biggest Ponzi Scheme in History

> In this sense, Bitcoins is not a Ponzi scheme. It is simply a supermoney scheme.

Admits that bitcoin is not a ponzi scheme in his own article.

> The money was siphoned off from the beginning. Somebody owned a good percentage of the original digits.

Implies that most bitcoins are owned by satoshi nakamoto, without substantiating this claim by any number to quantify the impact. The estimated stash of satoshi is about 1 million bitcoins: http://www.theverge.com/2013/5/6/4295028/report-satoshi-naka... . Today 11 million bitcoins are in existence. There will be an eventual cap at 21 million bitcoins, so satoshis stash is somewhere between 9% to 4% of all bitcoins. By comparision the winkelvii own about 1% of all bitcoins. I'm not qualifying the risk this presents, but I think it's important for an accurate critique to provide quantification.

> Money develops out of market exchanges. Money is the product of the market process. It arises out of an unplanned, decentralized process. This takes time. It takes a lot of time. It spreads slowly, Money has continuity of value. This is not intrinsic value. It is historic value.

These statements are provided by the author to explain the nature of money. Note that they do not contradict bitcoin, except perhaps in the haphazard and sometimes too fast adoption. However, the statement about the duration of the establishment of a monetary system derives largely from theory that was wholly written before there where computers or the internet. Historical observation cannot be a good guide when circumstances changed radically.

> Now let us look at bitcoins. The market value of one bitcoin has gone from about $2 to $1,000 in a year. This is not money.

Volatility != Money, I find this a weak argument. Substantial volatility can manifest itself in established currency markets as well.

The remainder of the "critisism" of this author basically boils down to "It can't be, because I say so. Perhaps best exemplified by this statement:

> In other words, bitcoins cannot possibly fulfill their supposed purpose: to serve as an unregulated currency unit.

Author offers scant real critisism beyond the observation that bitcoin is very volatile. Nobody is debating this fact. Nobody is objecting to the assertion that bitcoins, due to their volatility, are a difficult medium to use for exchange.

Sadly, author is missing an opportunity to examine what other prospects and drawbacks bitcoins have beyond a simple discussion of the nature "it's so volatile, you're crazy".

I don't think it would be possible to kickstart something entirely new, which has a massive potential as a technology, and not go trough phases of substantial volatility (many disruptive tech startups valuation goes trough phases of massive volatility, for instance like the early history of Microsoft). Now it's possible that this dooms bitcoin. However, it could be argued that if bitcoin didn't reward early adopters, and if it didn't had massive potential, which would invite the eventual hypes and busts and massive volatility, then it would linger forver in an obscure niche appreciated in it's abstract beauty by crypto and math geeks alone.

I think it's laudable to try, even if you don't succeed. But if you don't try, you're guaranteed to not succeed.

Litecoin does not solve any problem, just the proof of work algorithm is changed. The block time has nothing to do with it really, it just makes people believe one confirmation is as strong as any other (Litecoin's are actually just 4 times weaker).

If you buy Bitcoin at $1,000 and it stays above $1,000 ... and then at $100,000 per Bitcoin value if it only fluctuates $200 per day, that's not really volatile.

The problem is that the heavily restricted money supply and inherent deflationary pressure built into the currency make it a poor medium of exchange, since they provide an incentive to hoard Bitcoin rather than spend it.

Something that is scarce, restricted in future supply, and of high demand will tend to serve as a magnet for speculation.

Some features of the quoted 'Austrian School's theory' seem remarkably close to Bitcoin: it "arises out of an unplanned, decentralized process. This takes time. It takes a lot of time. It spreads slowly, as new people discover it as a tool of production..." and "becomes widely used as money as a result of innumerable transactions within the economy".

It's arguable that the 'unplanned' part is not a necessary feature of a currency. In fact, no fiat currency in circulation today has survived without a significant amount of planning.

In contrast, the planning which went into Bitcoin seems to have made it closely fit the theory's description of money. Arguing that its planned nature negates its 'moneyhood' (to coin a phrase... sorry...) seems a little like arguing that an artificial organ won't work due to not having been grown within the host, or that a genetically engineered organism will fail due to not having gone through an evolutionary process.